Money talks? Belarus’s quest for cash from the West

Speaking at the United Nations General Assembly in 2014, Belarus’s Foreign Minister, Uladzimir Makiej, criticised the imposition of “alien” political and economic models on his and other countries.

He said that weaker states were given a choice: either they accept...

Lukashenka and Head of the IMF mission in Belarus Peter Dolman. Photo: golk.by

Speaking at the United Nations General Assembly in 2014, Belarus’s Foreign Minister, Uladzimir Makiej, criticised the imposition of “alien” political and economic models on his and other countries.

He said that weaker states were given a choice: either they accept such models, or they face “threats, sanctions, and colour revolutions.”

Similar criticism of Western policy recurs in Belarusian leaders’ rhetoric over the years. Sometimes rhetoric equated the imposition of external models themselves with Western-backed regime change. Both variants surely reflect anxieties that Western states might one day move against Aliaksandr Lukashenka and his government.

Despite this many commentators see a thaw in Belarus-West relations over the past two years. This is motivated by Belarus’s disquiet about Russia’s foreign policy and the critical need for new sources of finance.

There are persuasive reasons to think that Belarus will continue to negotiate with Western partners: one reason links to its financial dependence on Russia, another reason links to a shift in Western policy. However, the fear of regime change will cast a shadow over developing relations.

Losing out to Russia

Belarus’s growing dependence on Russia compels it to seek alternative partners. In the past oil and gas transit bolstered Belarus’s bargaining position with Russia, but the sale of the pipeline operator, Beltransgaz, to Russia’s Gazprom in stages from 2011 reduced this leverage. So too will the proposed extension of the Nordstream gas pipeline.

A more significant problem is that Belarus’s bank capital largely comprises Russian money. Specifically, foreign ownership – primarily Russian – accounts for more than half the capital in sixteen of the twenty-six Belarusian banks. Foreign ownership grew significantly over the past year, and Belarus will lose financial independence if the trend is not reversed.

In effect, Russian owners could withdraw the cash from Belarus’s banks. If this were to happen there would be very little liquidity in the banking sector. Economist Anton Boltačka says, “At present Belarus is strengthening its [financial] dependence on Russia. Finding non-Russian sources of financing is imperative.”

Bargaining in the West

The Belarusian leadership thinks that recent events changed Western attitudes towards Belarus. For this reason too Belarus will persevere in dealing with Western organisations. Indeed, in the case of the European Union (EU) Belarus’s leaders are correct: the EU became more pragmatic following Russia’s annexation of Crimea and military intervention in eastern Ukraine.

The EU signalled its policy shift by lifting most of its sanctions on Belarus in February. This action ostensibly rewarded Belarus for the release of political prisoners and improving relations, but in truth the sanctions were originally imposed for “a deteriorating political and human rights situation” that remains largely unchanged.

Belarus sees in the West’s revised attitude an opportunity to shop around for loans. The lifting of sanctions allows Belarus to apply to the European Bank of Reconstruction and Development (EBRD). Meanwhile the European Investment Bank provides a further prospect, and the International Monetary Fund’s (IMF) Mission returned to Minsk in mid-September.

Mutual suspicions

The Belarus-West thaw therefore looks set to continue. This most likely happens against a backdrop of mutual suspicion. For the Belarusian government, any perceived efforts to foist on Belarus “alien” economic development models augur threatening changes. Put simply, loan conditionality may threaten perceived regime security.

Some Western writers corroborate Makiej’s 2014 comments, which reassures Belarus’s leadership it is rightly suspicious. Clearly Western states dominate the IMF with preponderant voting rights, and this allows their political policy preferences to prevail – although this is slowly changing.

The suspicion cuts both ways. The IMF’s 2012 consultation report on Belarus states that the 2011 crisis was “self-inflicted.” It attributes the crisis to the reversal of structural reforms implemented as a condition of its earlier Stand-By Arrangement financial assistance.

The IMF’s 2016 consultation report finds “structural weaknesses left largely unaddressed.” Consequently, it can be expected that the IMF demands evidence current structural reforms are irreversible before lending further money. Its prospective $3 billion loan hangs in the balance.

Moreover, Western organisations attract criticism from some in the Belarusian opposition. Jaraslaŭ Ramančuk, an economist and former leading figure in the United Civic Party, argues that the so-called Washington Consensus – the standard reform proposals issued by the IMF and World Bank – reflects “no consensus” and weak conditionality. For him, IMF loans “saved the Lukashenka regime” in 2006 and 2009.

What is to be done?

In lifting sanctions, realpolitik trumped the EU’s allegedly values-based foreign policy. However, domestic pressures from human rights groups will constrain the EU from making further major concessions towards Belarus. Muted criticism came in the wake of sanctions. A recent Amnesty International press release implored that ongoing developments “must not be allowed to eclipse the dire human rights situation.”

Perhaps this explains why EU diplomats pressed Minsk in the run-up to September’s parliamentary elections. Otherwise the emphasis on free and fair voting appears odd, given the parliament’s minimal role. Emphasis on the conduct of elections therefore indicated that EU officials are unwilling to soften their stance much further.

In the short term, Lukashenka provides order and stability in the Eastern neighbourhood, and this will be welcomed. But EU capitals expect that Lukashenka will respond to their concessions more substantively.

Lukashenka is experienced enough to know how swiftly attitudes change. He has witnessed “dictators” turn from friend to foe in the eyes of the WestRead more

For his part, Lukashenka is experienced enough to know how swiftly attitudes change. He has witnessed “dictators” turn from friend to foe in the eyes of the West. He watched the toppling of Saddam Hussain and Muammar Qaddafi. Accordingly Belarus can be expected to exercise continued caution. As Lukashenka told the Washington Post in 2011: “It’s better for Americans to work with us, rather than try to subvert us.”

Money for old rope?

Lukashenka also knows how swiftly the circumstances could change. The outcomes of elections in the United States, France, and Germany have implications for the maintenance of sanctions against Russia, which means spill-over effects for Belarus’s economy.

On the one hand, Belarus arguably needs the West more than the other way round given its present financial predicament. On the other hand, as Ramančuk observes: “Lukashenka is much smarter than Western officials at getting his ends.” Western organisations need to be sensitive to Belarus’s concerns, but equally shouldn’t buy old rope.

Paul Hansbury

Paul has degrees from the University of London and the University of Oxford. He is currently a doctoral candidate in International Relations, also at the University of Oxford.

Cooperation with China, attracting tourists, involving the church – state press digest

Belarus and China sign contracts totaling $20 million. The authorities build a large solar power station on land contaminated by the Chernobyl catastrophe. Aliaksandr Lukashenka participates in the CIS Summit for the first time since 2011.

A delegation of the European Commission visit the Belarusian NPP. The Belarusian President hopes that the Belarusian Orthodox Church will play a more active role in society.

This and more in the new edition of the state press digest.

Politics

A delegation of the European Commission visit the Belarusian nuclear power plant. Experts from the European Commission and Belarus met last week. The two sides exchanged plans and proposals to improve the situation at the Belarusian nuclear power plant. The Belarusian side confirmed that stress tests can held in December of next year. Deputy Director-General of the European Commission Gerassimos Thomas said that the European Union is looking for new opportunities to establish relations with Belarus in various spheres. The Astraviec NPP can become not only a competitive and profitable energy resource but also "an important geopolitical element", writes Belarus Segodnya.

Lukashenka attends the 25th Summit of the CIS in Bishkek. Representatives of various former Soviet Union countries gathered in the capital of Kyrgyzstan in order to discuss the future of the CIS.The President of Belarus attended the CIS Summit for the first time since 2011, writes Narodnaya Gazeta.

Despite having similar views on the importance of the CIS as a geopolitical platform, many heads of state, including the presidents of Belarus and Kazakhstan, emphasised the low efficiency of the CIS in several areas. Nevertheless, all parties agreed that the CIS has a future. Almazbek Atambayev expressed his hope that the CIS will remain a project that unites friendly nations.

Ministers of Foreign Affairs conducted a panel session during the summit. UladzimirMakiej expressed his opinion that the CIS is still the most important platform for the discussion of new challenges in the post-Soviet space. The Foreign Ministers of Belarus and Russia weighed in on issues of counter-terrorism and humanitarian cooperation. In addition, parties came to the decision that 2017 will be declared the Year of the Family in the CIS.

Economy

Belarus and China sign contracts worth $20 million. The Fifth China-Eurasia Expo took place in Xinjiang from 20 to 25 September, where 40 organisations and enterprises represented Belarus. According to the director of the unitary enterprise "Belinterexpo", Jauhien Uviadzienski, the Belarusian exhibition was highly popular from the very beginning, reports Zviazda. Mikalaj Snapkoŭ, Deputy Chief of The Presidential Administration, presented Belarus at a meeting entitled "China and Belarus – strategic partnership and trust".

During the briefing, participants discussed the potential for investment and tourism in the framework of Belarus-China cooperation. Both countries signed contracts on the development of cooperation and new supplies, totaling $20 million, in the fields of engineering, petrochemistry and food industries. As such, the confectionery factory Spartak settled a three year agreement with a Chinese sailing company. During the Expo representatives of Minsk Automobile Plant discussed co-production of electrobuses with JI WINWAY INVESTMENT CORP. OF CHINA and HARRY GAO Chairman enterprises.

Belarus builds its biggest solar power station near Brahin. The solar power station, with a 18.48MW capacity, is capable of saving up to 7,000 cubic metres of natural gas per hour. The total cost of the solar battery comes to €24 million. Velcom, the mobile operator responsible for its construction, announced that the plant is ready four months earlier than planned, writes The Minsk Times.

Located near Brahin, the station presents an example of an effective use of the lands contaminated by the Chernobyl disaster. Currently, the solar power station is the largest solar battery in Belarus with a total area of sixty football fields.

LLK-Naftan begins to cooperate more closely with Iran. The Navapolack based oil company has sent the first batch of lubricating oil additives to Iran, writes Vitebskie Vesti. Until the beginning of 2016, economic sanctions were a significant obstacle for Iranian enterprises. However, following the sanctions' removal, Iran organised an oil conference in Tehran, in which LLK-Naftan participated.

As a result, the two sides have signed a contract of cooperation, according to which the Belarusian enterprise will supply 50 tonnes of lubricating oil additives to Tehran. Currently LLK-Naftan is the largest producer of lubricating oil additives in the Post-Soviet space and has more than 25 international partners. Meanwhile, General Director of LLK-Naftan Michail Babuškin maintains that cooperation with Iran is taking place in an environment of strong competition.

Hrodna region attracts more and more foreign tourists. From January to July 2016 the region brought in $4.2 million, accounting for 128.8% of last year's income from tourism. The introduction of a visa-free regime in the region explains the increasing amount of tourists, writes Hrodzenskaya Prauda. The most popular reason to visit the region remains health services. Deputy Minister of Sport and Tourism Michail Partnoj says that Belarus has recently been ranked among the top 10 countries for expected level of investment in the tourism sector.

During a conversation with the Metropolitan of Minsk, Lukashenka noted that the Church can help not only in the socialisation and formation of moral values but also in other spheres. For example, the president proposed that the Belarusian Orthodox Church participate in the revival of historical and cultural monuments.

The Metropolitan of Minsk opined that the Belarusian Orthodox Church should serve as a partner and supporter of the state. At the end of the meeting, Lukashenka also noted that priests working in churches ought to be native Belarusians.

The state press digest is based on review of state-controlled publications in Belarus. Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.